• RankiaPro Europe
    • RankiaPro Spain
    • RankiaPro LATAM
    • RankiaPro Italy
SUBSCRIBE
Search
Close
  • Home
  • Insights
    EQUITIES
    EQUITIES
    FIXED INCOME
    FIXED INCOME
    ESG
    ESG
    INTERVIEWS
    INTERVIEWS
    MARKET OUTLOOK
    MARKET OUTLOOK
    ETF
    ETF

    Featured

    Cover-Silicon-Valley-Bank-bankruptcy
    Insights

    Silicon Valley Bank bankruptcy: the market reactions

  • News
    APPOINTMENTS
    APPOINTMENTS
    LAUNCHES
    LAUNCHES
    ASSET MANAGERS
    ASSET MANAGERS

    FEATURED

    cover-naim-abou-jaoude-ceo-candriam
    Asset Managers

    Candriam to acquire majority shareholding in Tristan Capital Partners: a leading european real estate manager

  • Magazine
  • Events
    RANKIA FUNDS EXPERIENCE
    EVENTS & CONFERENCE CALLS
    EVENTS & CONFERENCE CALLS
    RANKIAPRO MEETINGS
    RANKIAPRO MEETINGS
  • Podcast
  • MiFIDII Training
Menu
  • Home
  • Insights
    EQUITIES
    EQUITIES
    FIXED INCOME
    FIXED INCOME
    ESG
    ESG
    INTERVIEWS
    INTERVIEWS
    MARKET OUTLOOK
    MARKET OUTLOOK
    ETF
    ETF

    Featured

    Cover-Silicon-Valley-Bank-bankruptcy
    Insights

    Silicon Valley Bank bankruptcy: the market reactions

  • News
    APPOINTMENTS
    APPOINTMENTS
    LAUNCHES
    LAUNCHES
    ASSET MANAGERS
    ASSET MANAGERS

    FEATURED

    cover-naim-abou-jaoude-ceo-candriam
    Asset Managers

    Candriam to acquire majority shareholding in Tristan Capital Partners: a leading european real estate manager

  • Magazine
  • Events
    RANKIA FUNDS EXPERIENCE
    EVENTS & CONFERENCE CALLS
    EVENTS & CONFERENCE CALLS
    RANKIAPRO MEETINGS
    RANKIAPRO MEETINGS
  • Podcast
  • MiFIDII Training
Search
Close
Search
Close

Home | The crucial role of resources in the energy transition debate

The crucial role of resources in the energy transition debate

When it comes to mitigating the effects of climate change, natural resource companies are a crucial part of the solution, not the problem.
Barings

2023/03/14

By Clive Burstow, Head of Global Resources at Barings.

Rethinking the Energy Transition

Despite the various Net Zero commitments from countries around the world, global temperatures are set to increase by 1.8-2.7°C by 2050. This requires us to rethink the energy transition. 

It is well understood that to achieve Net Zero by 2050, we need to transition the energy matrix from one that is fossil fuel-based to one that relies heavily on renewable energy. This transition will need substantial investments in solar and wind generation capacity, which requires mining significantly higher amounts of raw materials—including copper, aluminum, and nickel—than we have in the last 30 years. What is less well understood is the impact that this transition will have on the materials used in everyday construction such as steel and cement. Also pressing, and arguably more contentious, is the amount of energy that will be required to drive the transition. Based on our projections, and perhaps somewhat counterintuitively, natural gas and oil will remain a critical component. 

The Key Role of Raw Materials 

Our estimates show that to achieve Net Zero by 2050, we will need to transition between 55-70% of the global power grid to run on renewable plus transition energy (natural gas and nuclear power), which means that 30-45% of our power supply will still come from what are termed fossil fuels. Today, approximately 85% of our energy comes from fossil fuels with the remaining balance coming from various renewable energy sources1.  

This means that as investors, we will be required to balance the potential benefits to companies of investing in new energy sources against the potential costs that companies will incur if they choose not to invest in these areas. At Barings, one way we have sought to do this is by enhancing our established ESG process to add a ‘cost of carbon’ to the Cost of Equity calculation that we use to derive our investment price targets. Through this, we are able to assess the cost of carbon to a company. We then combine this assessment with our understanding of the investments that the company will need to make to reduce its own carbon emissions as part of the effort to reduce global emissions. Ultimately, this allows us to form a holistic view of the economic impact carbon will have on our investments.  

Generators of the Transition

While renewable energy corporates, mainly wind and solar, will be the key beneficiaries of the transition, we would argue that these companies—which we classify as generators—account for only half of the energy transition debate. For instance, 2022 showed that while this sector offered long-term opportunities, in the near term, it did not necessarily generate a healthy return, largely due to the impact of rising raw material prices and lower levels of wind. 

These challenges highlight the importance of considering other forms of energy, such as hydrogen and biofuels. At the same time, when it comes to fossil fuels, natural gas is an obvious area of investment as a transition fuel, owing to its lower carbon intensity. And applications for oil also remain—especially given that a wind turbine requires two barrels of oil, synthesized into a lubricant, each year to keep its turbine spinning2. 

Enablers of the Transition

Alongside the generators, there are companies that enable the transition—including mining companies, steel producers, chemical processors and construction raw materials producers. The reality is, without a significant increase in the production of steel, copper, aluminum, cement, lithium, and rare earths, it will be almost impossible to achieve Net Zero by 2050. For instance, while a thermal coal power plant requires around one ton per MW of copper,  an offshore wind turbine requires eight to 10 times that amount3.    

While some investors have been historically reticent to commit capital to what they view—for now—as a carbon-intensive industry, there is a growing understanding of the role these companies will play in the energy transition. At the same time, they are decarbonizing their own production chains, and increasing (at the margin) their attractiveness to investors. With annual supply-demand deficits in commodities such as copper and aluminum growing larger and larger, and limited investment in new mines because of the time, cost, and regulatory burden to build them, the imperative to expand capacity through commissioning new mines is increasing by the year. The scarcity of these commodities, combined with the growing demand for them, will, in our view, eventually drive commodity prices higher in order to incentivize new supply—ultimately benefitting the enablers of the energy transition. 

Takeaway

By embracing all of the components of the energy matrix, including the raw materials sectors that have fallen out of favor among many investors, the goal of reducing carbon emissions to Net Zero by 2050 seems achievable. Ultimately, the journey will require effort, time and money. But one premise that is becoming increasingly clear is that when it comes to mitigating the impacts of climate change, natural resources companies are a crucial part of the solution, not the problem.

 1Source: Barings. As of December 2022.

 2Source: Barings’ estimates.

 3Source: IEA. As of March 2022. 

For Professional Investors / Institutional only. This document should not be distributed to or relied on by Retail / Individual Investors. Any forecasts in this material are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed by Barings or any other person. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.  
 
 Barings is the brand name for the worldwide asset management or associated businesses of Barings. This document is issued by the following entity: Baring International Fund Managers (Ireland) Limited), which is authorized as an Alternative Investment Fund Manager in several European Union jurisdictions under the Alternative Investment Fund Managers Directive (AIFMD) passport regime and, since April 28, 2006, as a UCITS management company with the Central Bank of Ireland. 23-2765847

  • Energy transition, Net Zero Carbon, sustainable investment

Related Post

Cover-Plants-Sustainable-BNP Paribas-RankiaPro

BNP Paribas AM adds to range of sustainable ETFs with two new bond funds

COVER-Clean Energy

Professional investors forecast surge in institutional investment in clean energy

rankiapro-credit-suisse-am-lanza-nuevo-fondo-tematico

Credit Suisse AM launches new thematic fund

NEWSLETTER
If you want to keep up to date with the latest news from the asset management industry and all our events, subscribe now to our newsletter.
Subscribe

Last Tweets

12h

🌤 The crucial role of resources in the energy transition debate

🔗#EnergyTransition #Resources #RankiaProEurope
...https://rankiapro.com/en/crucial-role-resources-energy-transition-debate/

12h

🗣️Change to @Amundi_ENG corporate governance

🔗 #Appoinment #Change #RankiaProEurope
...https://rankiapro.com/en/change-to-amundis-corporate-governance/

16h

🎙We introduce you to the new #AdvisoroftheMonth
João Martins, Senior Private Banker at ABANCA Portugal.
Don't miss
... his interview!

🔗#ProfessionaloftheMonth #RankiaProEurope
https://rankiapro.com/en/joao-martins-abanca-portugal-our-advisor-month/

14 Mar

🗣️ @Robeco launches Sustainable Senior Loan Fund

🔗#PrivateDebt #Sustainability #RankiaProEurope
...https://rankiapro.com/en/robeco-launches-sustainable-senior-loan-fund/

RankiaPro

  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us
Menu
  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us

Terms and uses

  • Cookies Policy
  • Privacy Policy
  • Disclaimer
Menu
  • Cookies Policy
  • Privacy Policy
  • Disclaimer

Contact

  • [email protected]
  • (+34) 963 386 976
  • (+34) 640 308 023

Newsletter

If you want to keep up to date with the latest news from the asset management industry and all our events, subscribe now.

Subscribe

All rights reserved © 2003 – 2023 Rankia S.L.

RankiaPro

  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us
Menu
  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us

Terms and uses

  • Cookies Policy
  • Privacy Policy
  • Disclaimer
Menu
  • Cookies Policy
  • Privacy Policy
  • Disclaimer

Contact

  • Email: [email protected]
  • Phone: 963 386 976 – 601 302 692

All rights reserved © 2003 – 2023 Rankia S.L.

Manage Cookie Consent
To provide you the best experience on our website, we use technologies like our own and third-party cookies for analytical purposes and to store device information. Consenting to these technologies will allow us to process data such as browsing behaviour or unique identifiers on this site. Not consenting or withdrawing consent may adversely affect certain features and functions.

To learn more, please read our Cookie Policy and Privacy Statement.
Functionality or Personalisation Cookies Always active
These cookies are necessary for the website to function or for the unique purpose of transmitting a communication over an electronic communications network, and cannot be disabled on our systems. Usually they are set up to respond to actions made by you to receive services, such as adjusting your privacy preferences or filling out forms. You can set your browser to block or alert you to the presence of these cookies, but some parts of the website will not work. These cookies allow the website to provide better functionality and personalisation. They may be set by us or by third parties whose services we have added to our pages. If you do not allow these cookies some of our services will not work properly.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics Cookies
These cookies allow us to count traffic sources in order to measure and improve the performance of our website. Storage or technical access which is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing Cookies
These cookies may be site-wide, placed by our advertising partners. These third parties may use them to create a profile of your interests and show you relevant adverts on other sites. If you do not allow these cookies, you may receive less targeted advertising.
Manage options Manage services Manage vendors Read more about these purposes
Cookie Settings
{title} {title} {title}
  • RankiaPro Europe
    • RankiaPro Spain
    • RankiaPro LATAM
    • RankiaPro Italy
Menu
  • Home
  • Insights
    • Equities
    • ESG
    • ETF
    • Fixed Income
    • Interviews
    • Market Outlook
  • News
    • Appointments
    • Asset Managers
    • Launches
  • Magazine
  • Events
    • Events & Conference calls
    • Rankia Funds Experience
    • RankiaPro Meetings
  • Podcast
  • MIFIDII Training

Follow us on social media

Linkedin Twitter Youtube Flickr

NEWSLETTER

Subscribe

Book now

The crucial role of resources in the energy transition debate